Top 10 property investment fears

You may have some hesitations about buying your first investment property, but there are ways to overcome them.

Blogger: Peter Gianoli, general manager, Investor Assist

Recently we sent out a survey to hundreds of our clients asking them a range of questions about property investment. This was Question 3:

What is your greatest fear with investing in residential property?

Outlined below are ten of the most common property investment fears and how to overcome them:

1. Not enough knowledge. Anyone can invest in property but no one is expected to be an expert. We recognise investing in property can be a daunting experience and that is why Investor Assist provides a wide range of free educational resources including property investment seminars, e-books, blogs, articles, white papers, guides, videos and events to arm you with as much relevant and useful information as possible.

2. Choosing the wrong property. It is important you choose not only the right property, but the right location. Investors need to understand the benefits of buying a new property rather than established, and how to identify an investment “hotspot”.

3. Losing money. There are never any guarantees with property investment but if you do your research and invest wisely, you should not lose money. It is always important to remember that property investment is not a short-term strategy and you need to be in it for the long haul. If you are looking at property investment as a get-rich-quick-scheme, you are looking at the wrong option.

4. High debt and lack of cash flow. You will always run the risk of high debt and lack of cash flow if you overextend yourself and invest beyond your means. It is important to identify a realistic investment budget that suits your personal financial circumstances, plus the most appropriate property and location for you.

5. Rising interest rates. As an investor, you must always be prepared for fluctuations in interest rates plus have the ability to accommodate them – this all comes down to careful planning and budgeting. If you overextend yourself, you are unlikely to have any funds left in reserve if interest rates rise. You can also look at fixing all (or part of) your mortgage for a certain length of time if you would like more certainty around your investment expenses while you find your feet.

6. Rental vacancies. You should always plan for the “worst case scenario” and unfortunately you may experience periods where your property is vacant while you are finding the right tenants. To avoid overextending yourself, one strategy we recommend is keeping some funds in an offset account against your mortgage. This will provide you with extra cash that is easily accessible if you need to cover the rent for a certain period of time and has the added benefit of off-setting your mortgage while your property is tenanted.

7. Choosing the wrong property manager. It doesn’t matter how well you do your research, sometimes even the most experienced investors choose the wrong property manager. Make sure you thoroughly research all your options and if possible, always choose a property manager who has sound knowledge of the local area where your investment property is located. Choosing the right property manager is an important job because it can greatly affect the financial performance of your investment.

8. Getting the wrong tenant. Often getting the wrong tenant can result from appointing the wrong property manager. Before you appoint your property manager, ask plenty of questions so you understand exactly what process they undertake to source the best possible tenants for your property. As an investor, it is worthwhile considering Landlord’s Insurance which is one of the most important purchases a property investor can make. This type of property investment insurance will cover you for damage to the building and contents, and for rental default or damage by the tenants.

9. Cost of maintenance to the property. The cost of maintenance and repairs is an important consideration prior to purchasing an investment property. Generally speaking, as a property gets older, you should start budgeting for more maintenance and repair costs. This is why there are significant advantages to buying a new investment property as maintenance should be minimal, especially if the property was designed and built using low maintenance, highly durable materials. If you purchase a brand new property you also have the added advantage of being able to claim full depreciation benefits at tax time. Should you choose to buy an established property, make sure you arrange a comprehensive building inspection as a condition of purchase to make sure you know exactly what condition the property is in to avoid any unwanted expenses!

10. Fall in property prices. Nobody has a crystal ball but history has shown property prices will always experience highs and lows. Property investors need to be willing to invest for the long term and if you invest wisely and have room to move financially (plus adequate insurances and protections in place), you should be well-placed to weather any unexpected dips or falls in property prices.

About the blogger

Peter Gianoli joined ABN Group in 2011 to establish Investor Assist. Peter has more than 15 years of experience in the property industry working across some of the country’s premier development projects and throughout his career has overseen the sale and settlement of properties worth in excess of $1bn. Peter is also a highly sought after public speaker and has educated audiences throughout Australia and around the world on topics including property marketing and investment.